Freedom Path, Inc. v. Lerner

• Decision Date: 25 May 2016
• Docket Number: Civil Action No. 3:14-CV-1537-D
• Parties: FREEDOM PATH, INC., Plaintiff, v. LOIS G. LERNER, in her personal capacity as former Director, Exempt Organizations Division, Internal Revenue Service, et al., Defendants.
• Court: U.S. District Court — Northern District of Texas

FREEDOM PATH, INC., Plaintiff, v. LOIS G. LERNER, in her personal capacity as former Director,Exempt Organizations Division, Internal Revenue Service, et al., Defendants.

Civil Action No. 3:14-CV-1537-D

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION

May 25, 2016

MEMORANDUM OPINION AND ORDER

This is an action by plaintiff Freedom Path, Inc. ("Freedom Path"), an organization that maintains that, when it applied for tax-exempt status, it was targeted by defendants United States of America ("United States"), the Internal Revenue Service ("IRS"), and unknown IRS officials for unconstitutional and unlawful treatment based on its conservative political views. The United States and the IRS (collectively, "the federal defendants") move to dismiss all but one of Freedom Path's claims, contending that Freedom Path lacks standing and that it cannot obtain declaratory or injunctive relief. For the reasons that follow, the court grants the motion in part and denies it in part.

I

The court has addressed the background facts and procedural history of this case in a prior memorandum opinion and order, Freedom Path, Inc. v. Lerner, 2015 WL 770254, at *1-2 (N.D. Tex. Feb. 24, 2015) (Fitzwater, J.) ("Freedom Path I"), and will therefore recount only the background facts and procedural history that are pertinent to the instant motion.

Based on a report of the Treasury Inspector General for Tax Administration ("TIGTA"), Freedom Path alleges that, at least as early as February 2010, the IRS began targeting for heightened scrutiny applications for tax-exempt status by organizations whose names included the terms "Tea Party," "Patriots," and "9/12 Project," along with other conservative sounding names.¹ According to Freedom Path, to effectively screen these applications, the IRS identified a series of criteria, internally called "Be On The Lookout," or "BOLO" lists. Freedom Path also alleges that IRS officials and employees requested additional information—including inappropriate and unconstitutional requests for donor information—from conservative nonprofit applicants, and that many of these requests were delayed for one year or more after the applications were filed. The targeting and heightened scrutiny of applications of conservative nonprofit groups and the accompanying delays inprocessing such applications have caused reluctance in potential donors and grantors and deprivation of other benefits of tax-exempt status.

Freedom Path filed its Application for Exemption as a § 501(c)(4) organization in March 2011. Freedom Path asserts that although its application contained all the necessary information for the IRS to make a determination of its tax-exempt status, the IRS in several letters made voluminous and probing requests for information almost one year after Freedom Path submitted its application. In September 2013 Freedom Path received a letter from the IRS analyzing Freedom Path's advertising activities and communications under the IRS "facts and circumstances" test, which is found in Revenue Ruling 2004-6 and is used to determine whether an organization's communications constitute "issue advocacy" or an expenditure for political campaign intervention under 26 U.S.C. § 527(e)(2). The IRS determined that two of Freedom Path's advertisements constituted campaign activity, but the IRS has neither issued a final determination of Freedom Path's tax-exempt status under § 501(c)(4) nor determined that Freedom Path owes any tax.

In Freedom Path I the court dismissed Freedom Path's claims against Lois Lerner ("Lerner"), an IRS official, for lack of personal jurisdiction; dismissed for lack of standing Freedom Path's challenge to Revenue Ruling 2004-6 brought against the federal defendants; dismissed Freedom Path's challenge to the federal defendants' policies and procedures for lack of final agency action; and dismissed Freedom Path's claims against the federal defendants based on alleged violations of 26 U.S.C. § 6103 as insufficiently pleaded. The court permitted Freedom Path to replead.

Freedom Path has filed a second amended complaint in which it brings claims against the federal defendants for alleged violations of Freedom Path's rights under the First and Fifth Amendments, 26 U.S.C. § 6103, and the Administrative Procedures Act, 5 U.S.C. § 702 ("APA"), and a Bivens² action against unnamed IRS officials for alleged violations of Freedom Path's First and Fifth Amendment rights. The federal defendants move anew under Fed. R. Civ. P. 12(b)(1) and 12(b)(6) to dismiss all of Freedom Path's claims, except for its claims under 26 U.S.C. § 6103. The court has heard oral argument.

II

The court first considers the federal defendants' motion to dismiss Freedom Path's claims under Rules 12(b)(1) and 12(b)(6). Before turning to the merits, it sets out the pertinent standards.

"Federal courts are courts of limited jurisdiction, and absent jurisdiction conferred by statute, lack the power to adjudicate claims." Stockman v. Fed. Election Comm'n, 138 F.3d 144, 151 (5th Cir. 1998). A Rule 12(b)(1) motion can mount either a facial or factual challenge. See, e.g., Hunter v. Branch Banking & Tr. Co., 2013 WL 607151, at *2 (N.D. Tex. Feb. 19, 2013) (Fitzwater, C .J.) (citing Paterson v. Weinberger, 644 F.2d 521, 523 (5th Cir. May 1981)). When a party makes a Rule 12(b)(1) motion without including evidence, the challenge to subject matter jurisdiction is facial. Id. The court assesses a facial challenge as it does a Rule 12(b)(6) motion in that it "looks only at the sufficiency of the allegationsin the pleading and assumes them to be true. If the allegations are sufficient to allege jurisdiction, the court must deny the motion." Id. (citation omitted) (citing Paterson, 644 F.2d at 523). "The burden of proof for a Rule 12(b)(1) motion to dismiss is on the party asserting jurisdiction. Accordingly, the plaintiff constantly bears the burden of proof that jurisdiction does in fact exist." Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001) (per curiam) (citations omitted).

In deciding a Rule 12(b)(6) motion, the court evaluates the sufficiency of the plaintiff's complaint "by accepting all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff." Bramlett v. Med. Protective Co. of Fort Wayne, Ind., 855 F.Supp.2d 615, 618 (N.D. Tex. 2012) (Fitzwater, C.J.) (quoting In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007)) (internal quotation marks and alteration omitted). To survive a motion to dismiss under Rule 12(b)(6), the plaintiff must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 554, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. (quoting Twombly, 550 U.S. at 556); see also Twombly, 550 U.S. at 555 ("Factual allegations must be enough to raise a right to relief above the speculative level[.]"). "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint hasalleged—but it has not 'shown'—'that the pleader is entitled to relief.'" Iqbal, 556 U.S. at 679 (quoting Fed. R. Civ. P. 8(a)(2)) (alteration omitted). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements do not suffice." Id. at 678. Furthermore, under Rule 8(a)(2), a pleading must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Although "the pleading standard Rule 8 announces does not require 'detailed factual allegations,'" it demands more than "labels and conclusions." Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555). "[A] formulaic recitation of the elements of a cause of action will not do." Id. (quoting Twombly, 550 U.S. at 555).

III

The federal defendants move to dismiss count IV of Freedom Path's complaint as moot. In count IV, Freedom Path alleges that the federal defendants violated its First Amendment rights by subjecting it and its application for tax-exemption to heightened scrutiny, targeting, and improper, inappropriate, and unconstitutional requests for information. Because mootness impacts the court's exercise of subject matter jurisdiction, the court considers it as a threshold question.

A

The Constitution limits the exercise of judicial power to cases and controversies. U.S. Const. art. III § 2; Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 239 (1937). A case is moot when the issues presented are no longer "live" or the parties lack a legally cognizable interest in the outcome. Powell v. McCormack, 395 U.S. 486, 496 (1969). Even when a casepresented a live controversy when it was filed, a court may not decide it if "events have so transpired that the decision will neither presently affect the parties' rights nor have a more-than-speculative chance of affecting them in the future." Clarke v. United States, 915 F.2d 699, 700-01 (D.C. Cir. 1990).

Freedom Path alleges that the federal defendants have denied its rights guaranteed by the First Amendment by targeting its application for tax-exemption and subjecting it to heightened scrutiny because of Freedom Path's conservative viewpoint. Freedom Path points to the federal defendants' "policy and practice of submitting [to Freedom Path] the unconstitutionally and overly intrusive requests for information" that caused an unreasonable delay in the determination of Freedom Path's tax-exempt status. 2d Am. Compl. ¶ 161.

The federal defendants contend that the conduct complained of in count IV has been remedied, and that Freedom Path's claims are therefore moot....